Measuring the costs

Finance Minister Arun Jaitley claims that the period of pain and inconveniences post demonetisation is getting over, allied with the active restoration of economic activity. Try and say that to the millions of migrant labourers who have lost their livelihood over the past two months. Latest data from the Ministry of Rural Development indicate that the average daily demand for work under the Mahatma Gandhi National Rural Employment Guarantee Scheme has recorded a massive jump in the last two months. It is evident that this sudden spike in demand for jobs under employment guarantee scheme comes at a time when migrant labourers have lost their jobs owing to the unavailability of cash following demonetisation and returned to their homes in search of work. Among the worst hit are those working in the informal sector employed by Micro, Small, and Medium Enterprises (MSME). Without jobs, these labourers go back to their villages and seek work under MGNREGA—a jobs scheme which guarantees 100 days of wage employment. Average labourer turnout per day for the jobs scheme has more than doubled since demonetisation came into effect. On January 7, 2017, the labour turnout for the day stood at an astounding 83.60 lakh, The Indian Express reported. One of the signs of rural distress in India is the spike in demand for work under MGNREGA. A similar spike was seen during the period between and April and June when there was a delay in the onset of monsoon, and vast swathes of the country suffered under the spectre of drought-like conditions. In those months, the labour turnout for the day touched one crore. Experts on the ground contend that number will be met in the coming days, even though the Centre and various State governments seem woefully unprepared to fulfil the demand for work. Demonetisation has managed to achieve what a drought could—substantially raise the demand for work under the government’s jobs scheme. One must remember how in the past Prime Minister Narendra Modi had gone on record early into his tenure to take pot shots at the Congress and mock the jobs scheme. Fast forward to 2017, and it’s the jobs scheme that may come to the rescue of this government.

If the above figures fail to convince, one could also assess the study put out by India’s largest organisation of manufacturers, the All India Manufacturers’ Organisation (AIMO), which represents over 3 lakh micro, small scale and medium and large scale industries. Results presented by the study conducted over the first 34 days of demonetisation do not make for pretty reading. Micro and small-scale industries suffered a 35 per cent loss in jobs and a 50 per cent fall in revenue. These figures are set to worsen by the month of March. It’s the same story across medium and large scale industries engaged in infrastructure projects and export-oriented activities. At a time when India is struggling to create jobs for its burgeoning populace, such job-cuts does not augur well for the future. The creation of jobs in this country is a serious concern. President Pranab Mukherjee recently made two very pertinent points—lack of adequate employment and the growing automation of the main job-generating sectors. The unemployment rate in India had shot up to a five-year high of 5 per cent in 2016. According to a report by the Labour Bureau, the figure is significantly higher at 8.7 per cent for women as compared to 4.3 per cent for men. GDP growth means nothing with employment generation in the doldrums. Increasing automation in the manufacturing sector further reduces the scope of job creation. Despite the job crunch in the economy, the government decided to implement an ill-planned ‘demonetisation’ drive, which has hurt employment intensive segments of the economy—mining, construction, textiles and garments, leather, gems and jewellery. In a further unfortunate development, recent data released by the Centre for Monitoring the Indian Economy shows a significant fall in investment proposals post demonetisation. The number of investment proposals in the October-December quarter nearly dropped to 1.25 lakh crore from the average of Rs.2.36 lakh crore worth of new investments per quarter since the BJP government took office at the Centre.

In his Facebook post on Sunday, Finance Minister Arun Jaitley also said that demonetisation was done as expenditure towards development has been compromised in India because of “tax non-compliances”. “Tax evasion has been considered as neither unethical nor immoral. It was just a way of life. Several governments have allowed this “normal” to continue even though this compromised with larger public interest,” he said. Modi’s decision was made to create a “new normal”. Nonetheless, as argued in these columns previously, the demonetisation exercise will do little to stem the flow of black money and retrieve much-needed revenue for the government. This is because most of the undeclared income is metamorphosed into property, gold and foreign holdings, leaving only about 4-5 per cent as cash within the country.